Russian crude exports remain high as OPEC+ partners demand clarity Ship’s crew

By Julian Lee (Bloomberg) –

Russian crude oil flows to international markets continue unabated and there is no substantive sign of the production cuts the Kremlin says the country is implementing.

Average four-week ocean shipments, offsetting some volatility in the weekly numbers, edged up slightly for the period ended June 4, rising to 3.73 million barrels per day from a revised 3.68 million for the period ended May 28.

Flows into international markets are more than 1.4 million barrels per day higher than at the end of last year – more than can be explained by the diversion of pipeline flows or reduced refining operations. Deliveries have also increased since February, the base month for the promised production cut.

Moscow’s OPEC+ partners have sought clarity and transparency on the part of Russia about the country’s crude oil production. They noted that Moscow has pledged to accept a February production level reassessment from OPEC’s secondary sources. The assessment of these seven companies currently stands at 9.83 million barrels per day.

There are little evidence that the cuts of 500,000 barrels per day have been made. Moscow has cited the diversion of crude oil previously routed to Germany and Poland via the Druzhba pipeline as the reason for the strong supplies; However, this switch occurred in January and February before the production cut was due to take effect. The flow of Russian crude through the pipeline, now restricted to shipments to Hungary, Slovakia and the Czech Republic, has been steady at about 240,000 barrels a day since February.

And while Russian refiners scaled back crude processing in the first half of May, volumes rebounded in the last week of the month, up about 180,000 barrels a day from the seven days earlier. Despite the drop in refinery runs, there is one no signs of a corresponding decline in overseas shipments of refined products.

Russia’s oil revenues are still small hit hard, despite strong foreign flows. Budget revenue from oil taxes fell 31% year-on-year to 426 billion rubles ($5.2 billion) in May, according to Bloomberg calculations.

Russia’s lifelines

The total amount of crude oil on ships bound for China and India, plus smaller flows to Turkey and volumes on ships that have not yet declared a final destination, remained virtually unchanged at a revised 3.62 million barrels per day for the most recent four-week period.

Flows to China from Russia eased in March from peaks in January and February. With the latest four-week moving average showing the equivalent of more than 650,000 barrels per day of crude oil on ships whose ultimate destination has not yet been announced, the picture for cargoes to be loaded in April and May remains subject to revision. Historical patterns suggest that most ships currently signaling destinations in “Unknown Asia” and bound for the Suez Canal will land in India, while those loaded onto very large crude oil carriers off the north coast of Morocco or more recently in the Atlantic Ocean will land , will travel to China.

Crude Oil Flows by Destination

On a four-week average through June 4, total marine exports rose 50,000 barrels per day to 3.73 million barrels per day. The more volatile weekly flows also rose by about 90,000 barrels per day to 3.69 million barrels per day, compared to a revised 3.6 million barrels per day the previous week.

Weekly data is affected by tanker schedules and loading delays caused by inclement weather. Port maintenance can also disrupt exports for several days.

All figures exclude loads identified as KEBCO grade from Kazakhstan. These are KazTransoil JSC shipments that cross Russia for export via the Baltic ports of Ust-Luga and Novorossiysk.

The Kazakh casks are blended with Russian-origin crude oil to achieve uniform export quality. Since Russia invaded Ukraine, Kazakhstan has renamed its cargoes to distinguish them from those of Russian companies. Transit crude oil is specifically exempt from European Union sanctions.

Average four-week shipments to Russia’s Asian customers and those on ships with no final destination rose to 3.42 million barrels per day in the period ended June 4, from 3.38 million barrels per day in the four weeks ended May 28.

While cargo volumes en route to India appear to have declined from recent highs, history shows that most cargo on ships with no original destination ends up there or in China.

The equivalent of 384,000 barrels per day was on vessels that either had destinations such as Port Said or Suez in Egypt, or that had already been, or are expected to be, transferred from one vessel to another off the South Korean port of Yeosu. These voyages typically terminate in ports in India or China and are shown as “Unknown Asia” in the table below until a final destination becomes clear.

The “Other Unknowns” volumes, totaling 267,000 barrels per day for the four weeks ended June 4, are tankers with no clear destination. Most of these cargoes come from Russia’s western ports and pass through the Suez Canal. However, some could end up in Turkey, while other cargoes are transhipped from one ship to another, either in the Mediterranean or, more recently, in the Atlantic Ocean.

Russia’s sea crude oil exports to European countries edged up to 83,000 barrels a day in the 28 days ended June 4, with Bulgaria the only destination. Deliveries to Turkey are not included in these figures.

A market that used about 1.5 million barrels a day of crude oil for short-haul shipping by sea from export terminals in the Baltic, Black Sea and Arctic has been almost completely lost, being replaced by far more expensive long-haul destinations in Asia, and time-consuming too serve.

In the four weeks ended June 4, no Russian crude was shipped to northern European countries.

Exports to Turkey, Russia’s only remaining Mediterranean customer, fell slightly to 230,000 barrels a day in the four weeks ended June 4; Inflows into the country had exceeded 425,000 barrels per day in October.

Inflows into Bulgaria, currently Russia’s only Black Sea crude market, surged to 83,000 barrels a day. Deliveries have averaged 77,000 barrels per day since March, compared with more than 150,000 barrels per day in January.

Rivers by export location

Total Russian crude oil flows rose slightly to 3.69 million barrels per day in the seven days ended June 4, compared to a revised 3.6 million barrels per day the previous week. A rebound in shipments from the Arctic was partially offset by a sharp decline in flows from the Black Sea port of Novorossiysk, bringing them back to more normal levels, and a smaller decline in volumes shipped through Pacific ports.

The figures do not include the quantities from Ust-Luga and Novorossiysk, which were identified as Kazakhstan’s KEBCO quality.

export earnings

Flows into the Kremlin’s war chest from its crude oil export tariffs rose $3 million to $52 million in the seven days ended June 4, compared with a revised figure for the previous week. The median four-week earnings increased by $2 million to $52 million.

President Vladimir Putin instructed his government to refine existing indicators and introduce additional indicators to calculate oil prices for tax purposes in order to narrow the discount to global crude prices. The Russian government calculates oil taxes using a discount to Brent, which sets the country’s floor price of crude oil for budgetary reasons. As in recent months, when Russian oil trades above this threshold, the Treasury uses the market price for tax calculations. As of July, the discount is currently set at $25/bbl, but this can now be capped.

The June tariff was set at $2.21 per barrel based on an average Ural price of $55.97, which was $23.90 per barrel over the period April 15-May 14 was below Brent.

Origin-to-site flows

The charts below show the number of ships leaving each export terminal and the destinations of crude oil cargoes from the four export regions.

In the week ended June 4, a total of 34 tankers loaded 25.8 million barrels of Russian crude, ship tracking data and port agent reports show. That’s 610,000 barrels more than last week’s revised reading. Destinations are based on where the ships are signaling to at the time of writing, and some will almost certainly change as the voyage progresses. All figures exclude loads identified as KEBCO grade from Kazakhstan.

The total volume of vessels loading Russian crude oil from Baltic terminals remained unchanged from the previous week at 1.67 million barrels per day.

Shipments of Russian crude from Novorossiysk in the Black Sea fell back to more normal levels after the previous week’s surge. A cargo of Kazakh crude oil was loaded at the port during the week.

As expected, Arctic shipments picked up again with four tankers completing their cargo in the week ended June 4th. The flow was the second-highest since Bloomberg began tracking weekly shipments in early 2022, while average four-week shipments from the port are the highest over the same period.

Ten tankers were loaded at Russia’s three Pacific export terminals, down from last week’s revised figure. Crude oil shipped from the region remained above 1 million barrels per day for a tenth week. ESPO crude oil flow through the port of Kozmino has averaged about 845,000 barrels per day so far this year. That’s 137,000 barrels per day, or 19%, more than in the first three months of 2022, before Moscow sought to maximize inflows from its main eastern terminal.

The bulk of the bulk en route to undisclosed destinations is Sokol cargo that has recently been transhipped to other ships at Yeosu or is currently being shipped from the De Kastri loading terminal to an area off the South Korean port. Most of them also end up in India.

Some Sokol cargoes are now being transhipped a second time in the waters off South Malaysia. A small number of ESPO shipments are also shifted from one vessel to another in the same area. All these cargoes have so far reached India.

–With support from Sherry Su.

© 2023 Bloomberg LP

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